Signs of Exhaustion

Gross domestic product growth came in lower than many had expected, and yet the market shrugged this off and rallied. Everyone thought this was terrific. Then, after its meeting, the Federal Open Market Committee told us nothing new -- that the Federal Reserve would essentially be pumping ever more money into the economy -- and the market went down. Yet that was good, too.

So an up market is good, and a down market is good. Boy, have we come a long way since the last days of December, when Maria Bartiromo of CNBC would retort to her bullish guests, "But what about the fiscal cliff?"

Meanwhile, the Russell 2000 had its worst session since the broad-market low on Nov. 14. This, of course, led to the poorest breadth reading we've seen all year. None of this should surprise anyone. The ratio of the S&P 500 to the Russell saw a definitive tick up. A higher high would solidify that move, but it hasn't yet done so.

In any case, breadth is what needs to be watched closely now -- because, as a result of just one day of negative breadth, the McClellan Summation Index has stopped rising. That's what happens when there is no correction along the way: The market gets exhausted and loses momentum, and then the indicators right over at the first sign of broad weakness.

The Summation Index can get back on track if breadth returns to decent positive readings for two trading days in a row. I think it will be only a matter of time before the index rolls over, especially since the first minor down day managed to halt the rise.

On the sentiment front, the Investors Intelligence readings showed another uptick in bulls to 54.3%, and the put-call ratios' moving averages are all curling upward. Earlier this week I noted that the 10-day moving average of the put-call was showing higher lows. The 30-day line, meanwhile, hasn't gone lower for at least two weeks -- and, at this point, quite clearly is ticking up.

Lest you think there was nothing positive to say about Wednesday's action, I would note that at least the KBW Bank Index (BKX) didn't go down much if at all. Of course, the BKX hasn't exactly had much of a rally most of the month, but at least there wasn't much selling going on during Wednesday's decline.

Finally, I was asked about the yield on the 10-year U.S. Treasury bond. This has resistance just shy of 2.10%, and a gap to fill just above that level. Unless Friday's employment report triggers it to gap up above 2.15%, I'd be inclined to think we're about to see some resistance in yields around the 2.10% level.

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